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Blaine Kitchware

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  1. I do not believe the capital structure and payout policies they are using are appropriate. The reason being is the shareholders are currently the ones footing the burden of the company being under-levered and over-liquid. Which leads to a surplus of cash, and lowers the return on equity, which makes the company less valuable in the long run.
  2. The disadvantages would be the company’s assets would decrease as they would have to finance the companies’ expansion, increase in debt could cause financial distress, and it would also significantly shift ownership from shareholders to the family. But it’s advantages would be an increase in leverage, a higher return on equity increase control for family members, and more control in the setting of dividends per share. So with that being said, I would recommend a large buy back by the company.
  3. Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of $18.50 per share
  4. 60571000 * .308 = 41,915,132
  5. Earnings before Taxes = 63946000-3375000 = 60571000

Return on Equity = 53630/45052 = 1.19

Family ownership shares before repurchase

62% = 36612000/59052000

Family ownership after repurchase of 14,000,000 shares

81% = 36612000/45052000

  1. If I was a member of the family of the family, I would be a fan of the repurchase. It would provide more flexibility in dividend per share, it would appear as more a family company, it would bring family ownership of the company to 81%, you would posses more peace of mind knowing the company had a legitimate healthy cash flow and wasn’t being manipulated for the books.



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